City Budgets are Hurting Watch Your Funding October 23, 2018 - PowerPoint PPT Presentation

City Budgets are Hurting Watch Your Funding October 23, 2018

Supporting 1 in in 9 U.S .S. jo jobs and contributing $2.4 .4T to our economy $ $ $ $ $ $ $ The travel industry fuels economic growth in the U.S. SOURCE: US Travel

Tra ravel l genera rated $16 164.8 .8 billi illion in in to total ta tax revenue in in 2017. . Wit ithout th this is im impact, each U.S .S. . household would pay $1, 1,300 more re in in ta taxes every ry year. r. SOURCE: US Travel

The Future is Built with Travel Promotion SOURCE: US Travel

City Fiscal Conditions • In 2018, the National League of Cities conducted a report on city fiscal conditions • The report looked at fiscal conditions from across the county based on region and population size. • Their findings indicated a deceleration of fiscal growth in cities across the county.

Changes in General Fund Revenue and Expenditure • Steady decline in Year-to-Year Change in General Fund Revenues and Expenditures revenue since 2016. % Change in Constant Dollar Revenue (General Fund) % Change in Constant Dollar Expenditures (General Fund) 4 • Expenditures are expected to continue outpacing revenues 3 in the coming years. % Change 2 1 0 2015 2018 (budgeted) SOURCE: National League of Cities

Changes in General Tax Receipts Year-to-Year Change in General Tax Receipts (Constant Dollars) • Major revenue Sales Tax (%) Property Tax (%) Income Tax (%) sources include; 6 Property Tax • Income Tax • 5 • Sales Tax • These major revenue 4 sources hit their peak in 2015-2016 % Change 3 • All major tax sources grew more slowly in 2 FY 2017 than FY 2016. • This trend is expected 1 to continue in FY 2018. 0 2015 2018 (budgeted) SOURCE: National League of Cities

Ability to Meet Financial Need The level of optimism of city fiscal • conditions is far below the levels in recent years. Tax revenue growth is experiencing a • year-over year slowdown. Smaller cities were more likely to • report an inability to meet the financial needs of their cities. SOURCE: National League of Cities

Reported Increases Revenue Factors Wages Price/Costs • Various factors were found to Infrastructure influence revenue performance, Public Safety spending levels and overall fiscal State Mandates conditions. Federal Mandates • City finance officers reported on 0 20 40 60 80 100 which expenditures experienced Reported Increases the biggest increases from the previous year. Reported Decreases • Like previous years, state and federal aid have decreased the Federal Aid most over the past year. State Aid 0 10 20 30 Reported Decreases SOURCE: National League of Cities

City Budgets are Tightening • A significant contributor to city budgets tightening is the looming pension crisis. • Pew Charitable Trust conducted a study on the pension crisis and discovered alarming statistics nationwide. • Case studies from California, Illinois, Minnesota, Massachusetts and Colorado provide insight on the current state of pension.

Pension Crisis Across the USA SOURCE: Pew Charitable Trust

Pension Crisis in California Liability Funding Ratio in 2018 • CalPERS calculates being funding at 68% in 2018 100% • $168 billion in unfunded liability 80% • State and local governments 60% forecasted to make tax increases and budget cuts in 40% order to rescue pension crisis 20% 0% SOURCE: California League of Cities

Pension Crisis in Illinois • $130 billion in unfunded pension liability • Pension-related payments currently account for over 25% of state’s expenditures • The share of the budget consumed by pension will grow and threaten to take funding from other core services. SOURCE: Illinoispolicy.org

Pension Crisis in Illinois • Illinois may allow pension spending to crowd out government services. • In Harvey, Illinois pension obligations caused mass layoffs in police and fire departments. • Due to dramatic increase in pension expenditure, Illinois state and local government employment has been decreasing SOURCE: Illinoispolicy.org

Pension Crisis in Minnesota • Minnesota dropped 26.6 percentage points in their funding ratio in one year • In 2016, funded at , the 7 th worst in 53.2 .2%, the nation • $50 billion in unfunded liability

Pension Crisis in Massachusetts • $86.9 billion in unfunded Massachusetts' Taxpayer Burden liability 2009 2010 2011 2012 2013 2014 2015 2016 2017 • Funded at 57.5% • State funding for pension expected to increase from $2.4 billion a year to $11.2 -$20,100 billion by 2036 -$23,200 -$24,100 -$25,500 • Tax dollars anticipated to -$27,400 -$28,000 -$30,300 be taken from core -$32,900 -$33,500 governmental services SOURCE: Statedatalab.org

Pension Crisis in Colorado • $32-50 billion in unfunded liability • Funded at 61.3% • ““We are taking money from new employees and using it to pay off this liability for old employees…some might call that a Ponzi zi scheme ” - Lynn Turner, Public Employees’ Retirement Association (PERA) SOURCE: PERA Financial Reports

Yuba-Sutter Tourism Improvement District Located 45 minutes north east of Sacramento, Yuba and Sutter Counties are home to beautiful landscapes, rich in outdoor activities and natural resources.

Visit Yuba Sutter was funded • by the City of Yuba City through a multi-year contract. • On the contract expiration, if hoteliers were not funding tourism promotion, Yuba City would have to eliminate funding. Over seven jurisdictions • participate in the Yuba-Sutter Tourism Improvement District, which generates $250,000 from assessment funding.

State Tourism Marketing Spending Just a few years ago, the top 50 corporate advertisers spent a staggering $80.6 billion marketing and promoting their brands. By comparison, the 50 state tourism offices spent about 0.5 .5% as much – just $437 million. SOURCE: US Travel

The Vital Role of Destination Promotion SOLUTION: CHALLENGE DESTINATION PROMOTION The primary motivator of a trip is Articulates the brand message that 1 usually the experience of a des- is consistent with consumer tination, beyond a single business motivations Pools sustained resources to 2 Effective marketing requires scale to provide the economies of scale and reach potential visitors marketing infrastructure required to generate impact

Tourism Funding Stability Can a vote of the city council or board of commissioners re- direct the funds? 22

Tourism Funding PRIVATE • Membership • Sponsorships • Event revenue • Contract services • Voluntary district PUBLIC • Untethered tax allocations • Tethered tax allocations • Sales Tax increment financing • Assessment (TID) 23

How Tourism Improvement Districts (TIDs) Work Tourism Collected by the And managed by businesses pay local government… the DMO. an assessment… Characteristics • Level playing field — no free riders • Transparency • Reliability • Pass-through to guests

“I remember when I was governor last time, the tourism industry was always asking me for more money from the state budget…You know I don’t like to spend money very much, so I’m glad you figured out how to to spend your own money. That’s a lot better, because if you had to deal with me, your life would be more difficult.” California Governor Jerry Brown May 3, 2017

National District Statistics Assessment 57% 168 TIDS Gross Structure Revenue % Most Recent: Squaw Valley, CA (August 2018) 43% Fixed $ Amount AMOUNT RAIS ISED $10,000 14 STATES Low $800,000 Median $36,800,000 High $376,137,806 Total

Active TIDs Washington Montana Oregon South Dakota Rhode Island Pennsylvania New Jersey Colorado California Kansas Tennessee Texas Louisiana Florida

Tourism Improvement Districts NATIONAL TID SURVEY

Survey Says.. On average, destination marketing funding increased 180% after forming a tourism improvement district.

34% of tourism districts increased the rate of assessment from the original TID amount.

TID Assessment Formula • Lodging: • Percentage of sales; or • Fixed rate per occupied room per night • Restaurant, Retail, Activities: • Percentage of sales; or • Fixed dollar rate that would vary by industry or size • Usually residential, office, agricultural, and government owned parcels would not be subject to the assessment.

• Civitas is the national leader in BID and TID formation. • Civitas has completed over 120 BID/TID formation projects throughout the Country. • Civitas has drafted BID/TID legislation in 12 states. • Civitas-created Districts have raised more than $1.7 billion for tourism promotion DMO’s.

Thank You! Contact Us John Lambeth Founder & CEO jlambeth@civitasadvisors.com (800) 999-7781